Nuclear insanity – is the EU seeing the light?

On January 31st the Sellafield nuclear plant informed its non-essential staff to stay at home after higher than normal levels of Radon gas were detected at the plant. Sellafield is where nuclear waste is reprocessed and contains what has been described as “the most hazardous industrial building in western Europe”.

January 31st is also the day the EU issued its initial assessment of the contract for the Hinkley Point C nuclear power station in Somerset. They are examining the deal to see if it breaches State aid guidelines – the rules which prevent member states from distorting completion by unfairly supporting particular deals or industries. The initial assessment does not make easy reading for the UK Government. It is a 70 page document which challenges on a number of fronts the fundamentals of the contract.

We have been bombarded with media telling us that nuclear is cheap and that it is time, in the Prime Minister’s alleged words, “to get rid of the green crap”. Renewable energy is cast as the bogey man responsible for energy bills going through the roof and a cause of fuel poverty (whilst those in the energy industry recognise that fluctuations in wholesale gas prices are the real cause). Removing green levies from the electricity bill and transferring these to the tax bill may make energy seem cheaper but it is essentially sleight of hand.

Is this the ‘green crap’ David Cameron had in mind?

The “contract” agreed with EdF (yes, that is Electricité de France) for the new nuclear plant at Hinkley Point C is a disaster for the electricity customer. The points raised in my blog post on October 21 are cause for concern and are the very same points being raised by the EU. While announcing the contract to much fanfare the Prime Minister David Cameron announced that it “will make prices lower than they otherwise would be”.

No need to look so enigmatic; France will do very nicely out of this deal!

This does not stand up to even the most rudimentary examination.

As it stands the cost of electricity from the nuclear plant at Hinkley Point C is higher than the cost of electricity from an onshore wind farm. The headline nuclear tariff is slightly lower than onshore wind, but it lasts for 35 years rather than 15 years for renewables. And when the non-transparent costs are included, the costs skyrocket. Insurance, security and waste management, are all paid for by the tax-payer. But the biggest hidden cost (again borne by the tax-payer) is the political guarantee and a debt guarantee given by the UK government. No renewable energy plant gets this type of subsidy. At a time when UK ministers are jumping up and down about the UK content of offshore wind farms, the Hinkley deal virtually guarantees the project’s Chinese and French investors a 10 per cent return for 35 years.

What does all this mean? Well it means that electricity from a new nuclear plant is not cheap – it is more costly than wind energy, and when the hidden costs borne by the taxpayer are included it is much more costly than renewable energy. Nuclear does not help to reduce energy bills, it makes electricity more expensive.

To go back to the beginning, the whole point of building Hinkley Point C, is, in the UK Government’s opinion, to “… achieve the combined general economic interest objectives of i) security of supply, ii) diversity of generation, iii) decarbonisation and iv) electricity price stability/affordability.”

This is in large part driven by what is known as the “capacity crunch” – the risk our lights will go out at periods of high demand as the UK starts to shut down its aging coal and nuclear fleet over the next five to six years.

However it is hard to see how the proposal meets any of these objectives.

As the EU initial assessment observes: “There is currently no EPR (European Pressurised Reactor) plant in operation anywhere in the world. The first two projects, Olkiluoto in Finland and Flamanville in France, the construction of which started in 2005 and 2007 respectively, have faced construction delays and cost overruns. Construction of two more EPR plants has started in China at Taishan in 2009 and 2010, where Areva is working with China Guangdong Nuclear Power Company (the latter will operate the plant).”

As we speak the European policy wonks are hard at work cutting through the flannel in the UK’s energy policy

The report goes on to state: “In particular, it appears difficult to argue that the measure can help the UK achieve security of supply, given that the plant will not be operational before 2023 (assuming the Investment Contract is concluded in 2013 and no delay occurs in the construction,) and that capacity levels are forecast by Ofgem to be relatively low before 2020.”

It continues: “The measure, moreover, could hardly be argued to contribute to affordability – at least at current prices, when it will instead and most likely contribute to an increase in retail prices…The notified measure would seem to be able to contribute to affordable prices only under very specific conditions which can only materialise far away in the future. The contribution to higher prices, however, would be very much in the short and medium term.”

So, in the EU’s assessment, Hinkley Point will not be built in time, will not ease a capacity crunch and will cause our bills to rise.

The EU is also critical of the fact that the UK has not taken into account future interconnection capacity in its modelling work, “based on the fact that it believes that the flows will be difficult to predict”. We will not have true competition in the UK until we have much more interconnection- spending £16b on new interconnection would help a lot!

Oh dear, UK. You forgot about the massive investment in grid infrastructure which will render nuclear new-build obsolete

Most damning of all however, and the whole point of the EU assessment, is to give an initial opinion on whether the deal breaches State aid rules. As they stand, EU State aid rules prohibit member states from unfairly supporting industries or deals which should be open to competition.

This is a very current debate, and new guidelines may mean that any energy technology which contributes three per cent or more of Europe’s overall demand will be deemed ‘mature’, and that mature technologies will have to compete against each other on price. Under this definition, UK onshore wind (and possibly offshore wind) projects will have to bid against each other for energy tariffs, perhaps as early as this Autumn.

It would therefore seem extraordinary that a nuclear plant, using a technology which has been around for 60 years, could be eligible for a cast-iron 35 year state subsidy, when wind energy, which has only been around since the 70s, is not.

Again, the EU seems to be taking a common sense view, stating: “it is not clear to the Commission that nuclear technology is immature enough to warrant State aid, or that it is characterised by specific market failures or other features which make State aid in the form of revenue support, or revenue certainty, necessary”.

All of the above is, in my view, a real shame. The UK faces a genuine challenge in replacing its old gas and coal fired energy stations and transitioning to new low carbon forms of energy. Yet it seems locked in an old ‘command and control’ system – trying to dictate our future energy mix under the auspices of the ‘free market’ but in reality closer to 1970s state industry-supporting Labour.

There is well in excess of 10GW of offshore wind which could be built in the coming years – if only DECC could give some clear, long term signals of support for what is a world-leading UK sector. Factories would be built if suppliers could have confidence in a UK market, but the uncertainties and limitations imposed by electricity market reform have achieved the opposite. The recent Scottish Renewables jobs survey reveals that the single biggest barrier to growth is “uncertainty over market reform”.

Marketforce are running an on-line survey at the moment and results so far show that 77 per cent of industry professionals believe “energy policy is driven by a short term desire for votes rather than what would be in the long term interest of the sector.” At the same time 66 per cent of those surveyed think the nuclear strike price is too high.

There is more than 1GW of onshore wind on Scottish islands – the equivalent of a power station, and immeasurably cheaper than nuclear – which could be built by 2020 if only DECC had a mind to solve the challenge of transmission links.

And we still have a world leading wave and tidal sector, desperate to progress, but finding real challenges in getting the financial support our industry needs. If marine energy could secure just half of what Hinkley Point would get in a year, it would be transformative for our industry. It would be UK money spent on UK projects, not a £1 billion a year state-guaranteed subsidy paid overseas, every year, for the next 35 years.

The Hinkley Point power station, in my opinion, makes no sense. It will be incredibly expensive, it won’t be delivered in time and will be a liability to our children and grandchildren and beyond.

It is hard to see how UK State aid can be offered to such an ill-thought out scheme, and it is good to see the EU is leaning towards the same view.